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Monday, March 14, 2011

Carnival Corporation (NYSE: CCL) Q2 2011 Price Target

Recent price: 39.84$

P/E Ratio: 16.20

3 Months Target Price: 44.50$

Company Description

According to Reuters, Carnival Corporation, incorporated in 1972, is a cruise and vacation company. The Company has a portfolio of cruise brands and is a provider of cruises to vacation destinations. The Company has two cruise segments: North America, and Europe, Australia & Asia (EAA). Its North America segment cruise brands include Carnival Cruise Lines, Holland America Line, Princess Cruises (Princess) and Seabourn. Its EAA segment cruise brands include AIDA Cruises (AIDA), Costa Cruises (Costa), Cunard, Ibero Cruises (Ibero), P&O Cruises (UK) and P&O Cruises (Australia). In addition to its cruise brands, the Company has a Cruise Support segment that includes its cruise port and related facilities located in Cozumel, Mexico; Grand Turk, Turks and Caicos Islands; Long Beach, California, and Roatan, Honduras. Cruise Support also includes other corporate-wide services. In addition to its cruise operations, the Company owns Holland America Princess Alaska Tours, which is a tour company in Alaska and the Canadian Yukon, which primarily complements its Alaska cruise operations. As of November 30, 2010, the tour company owned and operated, among other things, 15 hotels or lodges, with 3,420 guest rooms, 395 motorcoaches and 20 domed rail cars. As of November 30, 2010, the Company owned a 40% interest in Grand Bahamas Shipyard Ltd. (GBSL).

Confidence Margins

Strong resistance $48.14 (+21%)

Light resistance $44.90 (+13%)

Light support $38.92 (-2%)

Strong support $35.21 (-12%)

Recommendation

As a major cruise line, the company has recently suffered from the rise in energy prices. But as the market leader, with a 44% market share, Carnival corporation enjoys a competitive advantages and economies of scale that competitors do not. Also, the company unveiled poor results for it's first quarter of 2011 and this sent Carnival Coporation's stock plunging. As the market leader, the company remains positioned to fully take advantage of future price stabilization in the energy sector.

Entry strategy

For the cautious investor:

Buy the stock for 40.50$ or less.

For the risk-taking trader:

The June 2011 40$ out-of-the-money call option contract seems to be the right position to take, they can be acquired for about 310$ per contract.

Exit Strategy

For the cautious investor:

Sell when the stock reaches 44.50$, or keep it until 48$ if you are more bullish in your own analysis. It is highly recommended to keep the position on check if it goes sour.

For the risk-taking trader:

The contracts should be kept until the underlying reaches around 44.50$. This should provide a very interesting return when the underlying reaches the target price as the contracts gets in the money.

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Disclaimer

I am not a licensed investment advisor, so please consult with an investment professional before you invest your money. This site is for educational use only - any opinion here should not be treated as an investment advice. We are not liable for any losses suffered by any party because of recommendations published on this blog. Past performance is not a guarantee of future performance. Unless your investments are FDIC insured, they may decline in value.